Question

An employer has 14 full-time equivalent (FTE) employees whose average wages are $24,000. The employer pays $208,000 in 2017, which is 80% of its employees' eligible health insurance premiums for the year. The employer's credit for small employer health insurance premiums is:

A. $104,000

B. $44,571

C. $76,265 (Edit: This was the correct answer!)

D. $59,429 (this answer was marked incorrect when submitted)

E. $27,735

Answer 1

Answer: -

As per Affordable Care Act for Employers, the eligibility of employer for employer's credit for small employer health insurance premium (SHOP): -

1. Have 14 FTE which is less than 25, hence in our case employer is eligible for credit
2. Average wages of employees should be less than $50000 and which inflation adjusted for year 2017 it is $53000. In this case, the employer has average wage of $24000, hence in our case employer is eligible for credit
3. Pay atleast 50% of the cost of the employee health care coverage for each employee. Here in the case, employer had paid for year 2017 $208000 which is 80% of its employee eligible health insurance premium of the year, hence in our case employer is eligible for credit.

The maximum credit is: -

1. 50% of premium paid for small business employers
2. 35% premium paid for small tax-exempt employers
3. Credit is available for the employers for 2 consecutive taxable year

With this understanding: -

The employer take credit of 35% premium for small tax-exempt employers which comes to $59429 (=35% of $208000).

Option D - it is correct.

Option-A also looks correct as $104000 is 50% of $208000 but it is for 50% of small business employer which doesn't look fit and more data is required for the said option to be selected.

As mentioned in the question Option-C was given as correct, the same is not closer to required question provided, hence doesn't look correct.